Oil Soars 14% on Iran War Fears
Global markets are reeling from the widening war in the Middle East, with oil prices soaring more than 14% since strikes began. The surge is stoking fears of a new global inflation shock. While U.S. stocks initially plunged, they've since seen a volatile recovery as investors bet the conflict will remain contained.
The international oil benchmark, Brent crude, surged to nearly $83 a barrel, its highest level since January 2025. West Texas Intermediate (WTI), the U.S. benchmark, jumped towards $76 a barrel, a significant increase from its closing price of about $67 on the previous Friday. The primary driver of the price shock is the disruption of shipping through the Strait of Hormuz, the world's most critical oil chokepoint. While not formally blockaded, insurers have withdrawn coverage for tankers, effectively halting traffic for the 20% of the world's daily oil supply that passes through the narrow waterway between Iran and Oman. In response to the crisis, the OPEC+ coalition of oil-producing nations, led by Saudi Arabia and Russia, agreed to increase production by 206,000 barrels per day starting in April. However, this planned increase is considered modest, and a significant portion of OPEC's spare production capacity remains inaccessible to global markets if the Strait of Hormuz is impassable. A senior adviser to the commander of Iran's Revolutionary Guard Corps, Ebrahim Jabbari, announced the strait's closure to traffic, stating any vessel attempting to pass would be targeted. Jabbari also indicated that oil pipelines in the region could become targets. This event evokes memories of previous energy crises rooted in Middle Eastern conflicts, such as the 1973 oil embargo, which caused prices to rise by nearly 300%. During the first Gulf War in 1990, prices more than doubled before retreating after the conflict. The U.S. holds approximately 415 million barrels in its Strategic Petroleum Reserve (SPR), but the government has no immediate plans to release emergency supplies. The reserve was significantly drawn down in 2022 with a record 180 million barrel sale to counter price hikes following Russia's invasion of Ukraine. Analysts at Wood Mackenzie warn that oil prices could exceed $100 per barrel if tanker flows are not quickly re-established. This would be comparable to the price spike seen in the early days of the Russia-Ukraine conflict.
